Resolute Forest Products Inc (RFP) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Abitibi-Consolidated second-quarter 2007 results conference call. I would now like to turn the meeting over to Mr. Francesco Alessi, Vice President Investor Relations and Taxation. Please go ahead, Mr. Alessi.

Thank you, Christine. Good morning, everyone. I'm here with John Weaver and Pierre Rougeau, our CEO and CFO respectively, as well as Jocelyn Pepin, VP and Corporate Controller. Also joining us today is Jacques Vachon, our Senior Vice President of Corporate Affairs and Secretary.

Our prepared remarks today will start with Pierre going over the financial highlights of the quarter and of the year when pertinent. John will then give an update on the proposed Abitibi Bowater combination. We will then go back to questions.

Just before turning it over to John, I need to remind you that any forward-looking statements made on today's call are based on information we believe to be current. However, any number of risks and uncertainties can affect what we say, causing results to be materially different from those expressed or implied.

Thank you, Frank. Good morning, everyone. This morning we reported second-quarter profit of $148 million or $0.34 per share, compared to a profit of $157 million or $0.36 per share last year. The second-quarter results before specific items, which is not a GAAP measure, would have been a loss of $111 million or $0.25 per share, compared with a loss of $29 million or $0.07 a share in Q2 of 2006 and a loss of $95 million or $0.22 per share in Q1 of this year. Table 3 of our MD&A in slide five of our presentation break down the specific items net of income taxes.

Operating losses before specific items for the quarter was $64 million compared to a loss of $39 million in Q1 of this year and a $57 million operating profit for the second quarter of last year. EBITDA in the quarter came in at $42 million compared to $17 million in Q1 of this year and $168 million in Q2 of last year. When compared to the same quarter last year, the decrease in operating results was mainly due to lower prices in the Newsprint and Wood Product segments, lower sales volumes in all three segments, and higher cost of products sold in the Newsprint business.

The Newsprint segment reported EBITDA of $33 million, compared to $64 million in the first quarter of this year and $119 million in the second quarter of last year. The decrease in EBITDA in the current quarter versus the same quarter last year was due to higher production costs as well as lower prices in volume.

On a per tonne basis, cost of products sold was $38 higher than in the same quarter last year, primarily from the rising price of recycled fiber and the impact of higher maintenance downtime. However, costs in Q2 were $9 per tonne lower than in Q1.

Newsprint shipments in the quarter were 827,000 tonnes against 853,000 tonnes in the same quarter of 2006. The lower volume in the quarter was due to lower sales in North America affected by the decline in consumption and the [available] conversion which took place in the second half of 2006. Having said this, the 3% reduction in shipments compares favorably to the 10% year-to-date decline in North American consumption in large part as a result of our emphasis on the export market.

Inventories at the end of the current quarter were approximately 30,000 tonnes higher than at the end of the same quarter last year and 54,000 tonnes higher than the end of December 2006. The increase is mainly due to inventory buildup required for higher international sales. North American inventories continued to remain at low levels.

Finally during the quarter, we announced a price increase of U.S. $25 per tonne, effective September 1 for the U.S. market.

The Commercial Printing Papers segment reported EBITDA of $15 million compared to the $30 million recorded both in the first quarter of this year and the same quarter last year. During the quarter, the Company shipped 413,000 tonnes of Commercial Printing Papers, compared to 462,000 tonnes from the same quarter last year. In addition to the 36,000 tonne impact relating to the idling of our Ft. William mill announced in Q1 of this year, the Company also removed 24,000 tonnes of production in the second quarter by taking market related downtime at three of its CPP mills. Better input usage and productivity resulted in the segment's cost of sales to be $5 per tonne lower than the same quarter last year.

The Wood Products segment reported negative EBITDA of $7 million for the quarter compared to a negative EBITDA of $24 million in the previous quarter and positive EBITDA of $19 million for the same quarter last year. The variance against last year stems mainly from lower U.S. average selling prices, which were 14% lower. Sales volume in the quarter was 432 million board feet, down 109 million board feet from the same quarter last year.

In response to the softwood market conditions, we took downtime across the system during this quarter. Six mills were idled for periods varying from three weeks to the entire quarter and production shifts were reduced in other sawmills. Costs per 1000 board feet was $18 lower than the same quarter last year partly due to the re-evaluation of finished goods inventory which took place in Q1 of this year.

Capital expenditures for the quarter were $15 million compared to $31 million in the same quarter last year. Our CapEx for the first six months totaled $41 million and we expect to close the year at around $125 million.

Regarding the sales of our woodlands located in Georgia and South Carolina, we've closed the sales of 51 tracts representing about 18,000 acres of timberland for proceeds of $44 million. We expect to sell the majority of the remaining 37,000 acres before the end of the third quarter. Overall sale proceeds for all timberlands should be in excess of US$100 million.

In anticipation of the proposed combination with Bowater, we also proceeded with an amendment to our banking agreement to allow the necessary steps for the integration of the two companies. At the same time, the amendment also includes a waiver of the interest coverage ratio to the end of June 2008.

On this note, I'll pass it over to John.

Thanks, Pierre. Good morning, everyone. Our second-quarter results reflect the pricing and demand pressures that continue to confront our industry. This persistently challenging climate further supports the business merits of the proposed combination with Bowater, as it is expected to provide both companies with synergies that neither company would be able to achieve on its own.

Over the last six months, employees of both companies have spent significant time planning for the integration of the two companies. Nine integration teams were created and given the mandate to have a synergy and day-one readiness plans in place from an organizational perspective. For areas such as sales, supply chain, procurement, and manufacturing, where we could not share information with Bowater, we use clean teams. The clean teams were composed of independent third parties to whom both companies provided information for day-one readiness. This is expected to allow us to essentially hit the ground running.

All the integration teams were asked to come up with an organization that would leverage the strengths of both companies and set a mandate for operations of the combined company going forward. All this with the ultimate goal of delivering $250 million of synergies.

We continue to have ongoing discussions with the U.S. Department of Justice and the Canadian Competition Bureau and are pleased with the progress of these dialogues. We remain optimistic that approval should be received during the third quarter.

Shareholders of record as of June 20 were advised of the vote scheduled for July 26 and were sent proxy materials for the meeting. We were very pleased to see that ISS, Glass Lewis, and PROXY Governance, leaders of corporate governance and proxy solutions, have recommended that both shareholders of Abitibi and Bowater vote for the proposed combination. I believe it is important to mention that in arriving at their conclusions, these three firms acknowledged that both management and the boards of Abitibi and Bowater considered strategic alternatives other than the proposed combination and that the $250 million synergy target was well-documented through third parties.

Last week we announced a proposed senior executive team to lead Abitibi-Bowater. We assembled the team from very seasoned professionals with diverse and impressive backgrounds. I'm confident they will provide the leadership necessary to deliver not only the $250 million of synergies, but also to put together plans for stretch targets both in terms of dollars and timing of these synergies.

We expect that the proposed combination creating Abitibi-Bowater will deliver direct benefits to our customers. Our new company will provide access to a broad range of forest products and best-in-class customer service with continued commitment to environmental sustainability. Finally, there is no doubt that the combined company will have greater financial flexibility, improved cash flow, and remain focused on debt reduction.

On that, we will turn it over to Frank for questions.

Thanks John. Just to remind you that the call will be archived on our website where you can listen to a replay until August 2 by dialing 514-861-2272, password 320-4933. Also please note that the replay will be available only after 5:30 this afternoon. We're going to start with questions from the investing community and we will conclude with the business media. Any follow-up questions can then be directed to me at 514-394-2341.

(OPERATOR INSTRUCTIONS) Mark Wilde, Deutsche Bank.

I wondered, John, just taking a couple of steps back, the increased emphasis on export volume, could you just talk about sort of the pluses and minuses of that in your view? Clearly a plus is that at least for U.S. mills that currency is helpful how. I think a question for a longer-term perspective though is that was that these export markets have been very, very, very volatile over time and sometimes have among the lowest prices in the world.

I think -- the point of our export strategy is that we have a core export market which we've been long-term suppliers to for 50 years, both especially in Europe and Latin America. This core tonnage is the primary export tonnage and we tend to go up and down with these customers depending on their local markets and also pricing. In general, however, pricing does follow the U.S. pricing, somewhat more volatile. But like the U.S., I think that much of that volatility has gone away as we look more and more at global markets. We only have I would say a few, a handful of countries now where we see the extremes of pricing that we used to see, say, 10 years ago.

So we do have a much better stability. I think in terms of mill net though, we have to look at the logistics side of the equation, so that is one of the things we always balance. Our goal is to have mill nets on average equals to North America. So today between currency and pricing, the prices in the rest of the world are quite favorable and the downside is therefore the logistics costs. And from time to time, some inventory build.

All right, John, and if I could just follow up on the currency side, any thoughts from your perspective about why we have not seen more closures up in Canada over the last six months a the Canadian dollar has gone on this rampage? It would appear that an awful lot of mills up in Canada must be bleeding cash now. And I'm not just talking about Abitibi or Abitibi and Bowater.

I think as we look at the various peer builds I guess, we feel that for Abitibi we have a very good stable of assets in Canada, and therefore should be among the very best and therefore we would think that some of our competitors are feeling the brunt of the dollar more than we are. I think this as to why -- what will cause them to close or not close, that is probably up to the various individual companies. It is better not for me to speculate.

Thanks, John.

Bill Hoffmann, UBS Securities.

I wondered, John, if you'd just talk a little bit about this inventory build for the export markets and whether you think that that is -- you have gotten to the right level now at this point in time? And then the second part of it was just I think Pierre mentioned that you had some inventory build also in the Commercial Printing Papers. I just want to understand a little bit more about the dynamics of what you are seeing in these commercial markets right now from a sale standpoint, because the volumes were down there as well.

Well, I think that for Abitibi, our inventory is up on the international. I think it is probably built up to where it sufficiently needs to be at this time. We certainly saw build in the first and going through some of the second quarter as we moved position tonnage, additional tonnage in export markets and at the mills. It always seems that initially especially in the winter months that the boats are always running a little bit behind schedule, so that results in inventory build. And one of the boats are also much bigger nowadays than they used to be and so you miss one boat and instead of being 6000 tonnes, it is 12,000 or 20,000 tonnes.

So if we look at our North American markets, it is pretty balanced inventory wise. So I think we've seen pretty much the extent of build for the international market and we might see that come down later on.

Yes, this is Pierre. My reference point to the inventory being higher was compared to last year, where we shipped less than international market. Compared to the end of Q1, the inventories have not moved. Inventories are at basically the same levels they were at the end of Q1 both in CPP and in Newsprint.

Okay, then Pierre, you also talked about the idling of I guess six mills in the wood side. That was I guess in the second quarter. Where are you here in the third quarter? And (inaudible) wonder if you could give us some comments on competitor Domtar, they are potentially monetizing their solid wood assets in Eastern Canada.

John (multiple speakers) will take care of the --.

I think for the downtime in the sawmills, we generally take a summer holidays. Some of that will take place in the third quarter and I think given the market conditions, one should expect that we will continue to take downtime across our system in order to attempt to balance supply/demand and keep our cost structure as low as possible. But we have a supply/demand situation as we all know because of the U.S. housing starts on the lumber side.

Do you think it stays at these similar levels where you were in the second quarter?

Around there, I guess.

Approximately, maybe -- we might run a little bit more, but it is all timing. It is going to be up-and-down in the third and fourth quarters around the same levels.

Can you comment on the potential to monetize that whole business?

By Domtar?

Yes.

Well, like John said, it is difficult for us to comment on other people. I guess the only thing that I can say is that the value I guess surprised people on the upside so that is positive for the industry.

Joe Stivaletti, Goldman Sachs.

I just had a few things. One is on the -- I was wondering are you in a position where you could talk about your shareholders? I know you've got obviously the one big shareholder that's come out not in favor of the deal. Have you -- can you identify any other large shareholders that are not in favor of it?

We can't talk about specific shareholders, but we have in fact talked to almost all our large shareholders and we really have only the one negative response. Most of our -- all of our other shareholders seem to be positively in favor of the deal. So we have had these discussions with our shareholders well before the announcement of -- from Third Avenue. And we have followed up since and so it seems that we still have strong support and we believe that the deal will go through as proposed.

Great. Good luck. Two other things. One, on the hydro transaction, in terms of accounting for that, is it the case that you simply are showing the sale of those units on your cash flow statement and then an increase in debt to reflect the debt that was issued there? I mean it is obviously not showing up as a big asset sale. I just wanted to clarify how (multiple speakers).

That is correct; it is not an asset sale. What you see on our cash flow statements is the proceeds, it is called proceeds from a the dilution, which from selling a 25% interest in the partnership, and we do consolidate the debt. The debt -- the partnership appears on our balance sheet and the proceeds we got are also on the balance sheet.

Right. So it's showing up in your cash flow an increase in long-term debt and then we use that to repay some other debt.

That's right. Keep in mind there was -- we did have a bond maturing I guess in the month of May. It was for $61 million U.S. or about $70 million Canadian. We paid that down with part of the proceeds as well so reduced our revolving facilities which is also part of the proceeds.

And we have cash.

And just finally on the currency situation, where do things stand in terms of any currency hedging that you're doing right now? Where were you in the second quarter in terms of any impact from hedging?

We're still doing the same policy. We are hedging about 30% of our exposure up to 12 months out. So we are still continuing with the same policy in the second quarter.

So can you quantify the positive impact that you had (multiple speakers)

No, it is not a number that we quantify. It is not that much different. Let's put it that way, it is less than last year and it is not -- in the first quarter it was slightly negative, the second quarter was slightly positive.

Okay, thank you.

Jeff Harlib, Lehman Brothers.

What you're seeing in terms of orders and demand from the various --

Jeff, can you start again? We missed the front end of the question.

Sure. In Commercial Printing Papers, can you just -- the shipments at Bo were a little bit light in Q2. Can you talk a little bit about what you're seeing in terms of demand and orders in the different grades? I know there was a $60 a tonne price increase I think on SCA. Can you just talk a little bit about those markets?

I think overall the demand is improving for most of these grades, however there has been especially in the glossy and super high bright side, there has been increased supply coming to the marketplace. For example, the restart of the Port Hawkesbury mill and the conversion to super high brights by other producers, Bowater and NORPAC and Catalyst, for instance has brought additional supply into those markets. But despite the somewhat imbalance of supply/demand, pricing has stayed very fairly steady. But our volume has fallen off somewhat due to the downtime. We also, you have to remember that we idled the Ft. William mill and that is about 36,000 tonnes a quarter of less capacity right there.

Okay, and the $60 price increase?

The $60 price increase announced for July 1, you know it has been so far I would say a tough implementation, but we are continuing to work with our customers on that.

Okay, and in Newsprint in 2Q, are you taking any market related downtime beyond normal maintenance given the continued decline in consumption?

We have not taken any market related downtime so far this year. We have -- we did in the second quarter though take more than the usual amount of downtime for maintenance reasons, especially when compared to a year ago. We also had a fire in our Grand Falls mill, which resulted in an approximately three-week outage at that mill. Almost four weeks, really. So between the maintenance and the fire, we did take some downtime across the Newsprint operations, but not for market reasons.

Okay, I was just going to ask how many tonnes of downtime to you do take in Newsprint and how does it look for Q3 here?

I don't know that -- it's just normal maintenance. We did not really track the number as far as what it would be. It is basically taking mostly two and three days at a time at various mills, with the exception of the fire, which was probably more or less 20,000 tonnes for the fighter.

Okay, thank you.

Joe Naya, UBS.

Turning back to kind of the question of export versus domestic markets, I am just curious if you could kind of share with us what your mix is in terms of volume that you're looking at going export versus domestic and then what difference you're seeing in prices as well?

Approximately one-third of our volume goes into the offshore market. Last year it was somewhat less than -- it was more like 30% and we have grown that closer to 35%. Maybe in the third quarter it might be upwards to 40%. One thing about international, the export business tends to grow every quarter just on a seasonal basis. The first quarter is generally the lowest shipments and the third and fourth quarters are generally the highest shipments to the international markets. It is sort of just the way the market operates.

As far as the pricing, you know the pricing has been fixed in Europe for the year, it's fairly steady. And the prices in Latin America and the rest of world follow U.S. prices. They are actually slightly higher than the U.S. right now to offset the freight charges.

Okay, and then in terms of the domestic price increase in newsprint, how has that been going so far?

Well, it's announced for September 1, price increase for Newsprint, so it is not really underway yet. I think what we have to -- as we look at the overall statistics, I think it is given the increase in export by the industry, North American demand has come -- supply and demand has come much more into balance. But I think we are looking at a slow period in August. But we should see some tightening in the market in the fourth quarter and so there is some optimism around the price increase.

Okay and then looking forward just in terms of your input costs, just curious where you see those headed in the third quarter? And kind of what variance you saw from the first to the second?

Well, from the first to the second quarter, our costs were down about $9. Some of that is seasonal and some of it is the decline in the recycled pricing. I think we expect to in general see costs to be the same or lower in the third quarter. We generally see lower costs in the third quarter.

Okay.

Plus we have less downtime in the third quarter, maintenance downtime.

We have taken a lot of our maintenance downtime in the second quarter, so we should not see that in the third.

Okay, great. And then just one last thing, just on the commercial printing. The results came in a little bit lower than we had been expecting. Can you offer any kind of additional color as to what might have been going on there?

The costs of the group have actually improved. I think the biggest probably impact is that there is some impact on the revenue side from the currency, FX exchange. That is probably the biggest impact for that area, because costs are better, volume is flat, pricing in U.S. dollars is flat. But in terms of mill nets, it is down somewhat because of currency.

Okay. Thanks.

Bruce Klein, Credit Suisse.

Just, Pierre, you mentioned you need a bank covenants -- was the interest coverage -- was it waived till 2Q '07 -- or '08, I'm sorry?

Yes, until June 2008.

And then the debt to cap, I think you are still way under, but was there a change in that as well or no?

No, there was no change in that. We are way, way under on that one.

Is there any other covenants that you tried to address that were not addressed or you think you need to address on the bank side?

We just have two covenants.

Okay, then the Canadian dollar sensitivity, can you just remind us the latest what $0.01 represents?

It is the same -- it is between $0.01 and the EBITDA is between $28 million to $30 million.

Thanks.

Chip Dillon, Citi.

My question has to do with looking at the global newsprint situation and just tracking the prices in the trade publications, we're getting close to $140 difference between what pulp and paper this week said German prices were if you convert to U.S. dollars and what we had for the 570 here. I guess when you see that and then you see the pound at such a high level, what are you hearing about these projects that are being talked about for the UK?

Palm, I guess one of them is Aylesford which involves two public companies over there, [Monday] being one of them, and [ECHO], which I'm not sure has financing.

I think that what I am hearing about the three things in the UK is that it is not -- no one believes all three will be done. There's various speculations on who will be the most likely, but I think that most people do not expect all the projects to go through.

Okay, then when you look at this price differential to [public's] prices, are your mill nets reflecting such a big difference? Obviously not that you would make that much more, but it would seem to me that since freight is not anywhere nearly that big that your mill nets over there as long as you have a place to take the paper and get it sold should be higher than what you're getting here.

Mill nets internationally are actually higher than North American mill nets currently.

Okay. Then the last thing is this time last year we heard a lot of discussion about the Chinese -- about Chinese, the few machines that were starting up last year and how I know some of the big customers like Gannett were actually quite open about buying tonnes from them. And yet we just got the statistics last night that show virtually nothing coming in from anywhere outside North America. Do you have any knowledge as to why we're not seeing imports as we thought we would get from China as was announced by say, Gannett, or even Central National?

I think the general feeling of Abitibi and perhaps the rest of the industry was that it was really an expensive proposition for the Chinese to ship to North America and that the likelihood of seeing any significant tonnage from China was slim. But we did -- actually I thought we would see a little more than we did. We have not really seeing any, but what we have seen I think is the Chinese have grown somewhat their markets in Southeast Asia and India, which of course from a freight standpoint is much better business for them.

I think will probably see even a decline in that though as we look out given the change in the rebate laws in China and we will see some pulling back into China I think, maybe some closure of the smaller, older machines in China.

Okay and that gets to last question, John, as we look at the numbers for Abitibi in the specialties, uncoated area, it seemed like most years up until about 2003 the returns were probably good and then they just sort of fell. And that is true for everyone. And I did not know if there was any sort of one reason or two reasons you could tell us -- what that business over a period of five or six years as to why that happened?

Well, I think the bottom line is of course the commercial printing pricing has been fairly flat over time, which is a positive in U.S. dollar terms, is a positive. We have unfortunately seen an escalation in some of the cost structures especially with energy across all of North America and some fiber aspects in Canada. Then of course we had the impact for Canadian producers of the Canadian dollar. And I think a lot of the specialty papers are made in Canada, so I think that is the reason we have not seen the normal profitability.

So as we go forward, the emphasis is going to be more and more on these commercial printing mills to further lower their cost.

Got you, thank you.

Christopher Chun, Deutsche.

I just had a question about your land sales. It seems like you're getting a very good fair acre price down there. Can you tell us a little more about exactly where the land is located?

Well the land is essentially in Georgia and South Carolina and a lot of the land is actually -- will be used for higher value purposes I guess going down the road. So that helps to explain the value we are getting per acre. The other reason is that we took a lot of time and a lot of pain to actually take the 55,000 acres and not sell them as one block. So there is about 160 different tracts and we are selling them tract by tract. So it is a lot more time-consuming, but it does reward you a lot more than selling the whole thing in one block.

Okay, great. So is the land near any cities or resort areas or anything?

Well certain tracts are on lakes. Certain tracts are in housing or near housing developments. Of course we're getting higher value for those tracts.

Most of the tracts are located within, say, 150 miles of the Augusta mill in both Georgia and South Carolina.

Okay, thanks for your help.

Angie Salam, Deutsche Bank.

I was just wondering if you could give us an idea of financing plans for the combined company, combined credit facility? Any plans for the upcoming debt maturities, etc.?

Well that will have to be determined once the companies are together. Just like we get questions about strategic direction for the company. Those things we cannot answer at this point. Likewise, the actual plan for the new company will be derived once the new company is put together. I think John pointed out though that debt reduction will still be a full (inaudible) of the new company which is (inaudible).

I think as part of the integration process, we have teams that are exploring options that we can take to the new Board of Directors as fast as possible, because obviously one of the things we need to do is to put the refinancing in place.

Okay so it could be assumed that this is going to be kind of top priority, soonly announced once the deal closes?

Absolutely.

Okay, thank you.

Kevin Cohen, Banc of America Securities.

A couple of questions. Pierre, I guess in your new role are you able to comment maybe in terms of how you would run the Newsprint division differently than how it is being managed today to improve profitability, outside of capacity adjustments?

John?

Pierre is going to lower costs and raise prices. No, he can't comment on that.

I cannot comment on this at this point. Again, my previous comment is that we cannot comment on future, strategic direction of the company on the combined basis. Of course, Dave and John are asking me a lot of questions and I am looking forward for this challenge. I am very happy about it.

Great. And then I guess the second question, the large investors have been pretty public in questioning the synergies premise of the transaction. Are there things that management can point to that will give people more confidence that the number is real and that it will flow through to financials?

Well, I think that for one, I think both companies have a history of achieving the synergies in their various mergers and acquisitions, but more importantly probably is as I discussed in the script, we have put together nine integration teams. These are made up of senior players from both Abitibi and Bowater. We have put together synergy targets and they have addressed those targets and have begun to discuss stretch targets inside the synergy teams. And where we have not been able to have one-to-one discussions, we have set up clean teams so that we can have the information on day-one to get going on the synergies. So I think that we will be able to achieve at least $250 million of synergies.

What do you think is the biggest risk to achieving those synergies? I guess just in the context of an investor being so public and so outspoken that the synergies number is difficult to achieve, maybe just anything else you can share on that? The biggest risks to the synergies achieving it?

Of course the biggest risks always on these kind of things are putting together the right teams of people. We have begun to assemble the teams and I think it has been really rewarding to see the people on the integration teams work together and be open to new ideas. And, frankly, I feel pretty comfortable with the $250 million of synergies.

Great and then just the last question. Were there any amendments to the bank facility outside of the interest coverage test that you alluded to to allow the combination to go through or was that the only change?

No, there were other amendments. We need for tax purposes and for other reasons we need to move pieces around once the company gets together. We need to move assets around, the two companies. And as an example, so that amendment will enable us to do that.

So that's the only material other change?

Yes, pretty well.

Okay, great. Thanks, good luck.

Peter Pluat, Sanno Point Capital.

Most of my questions were answered and I appreciate the time. Just a quick question, sorry to belabor the point with Third Avenue, but according to the proxy statement it says that if the investor basically officially dissents, that could block the merger. But you have the ability in management to waive that dissent. I was just wondering if you could comment on that process and any potential legal aspects that could result from that?

Well, what decides whether or not the merger goes through is the actual vote. So a shareholder in order to dissent must vote against the deal. So then it is the vote that determines the merger goes through or not. After the vote happens, as you read in our agreement with Bowater, there is a limit of 12% which both parties can waive. But actually in due course you need to have the result of the vote first and then the two companies will see and determine if there is indeed -- if that happens, what goes on next.

Right. That is clear in the document, but if there were -- they could not block the merger basically is what you're saying. It could just basically result given the larger than 12% threshold of Third Avenue now into maybe just some potential legal issues, but not an actual dissolution like say of the actual combined merger?

No. Again, it is a vote that takes place and then after that to the extent -- if there were dissent above 12%, it would have to be -- the two companies' Board would have to waive that

So your summary is essentially correct.

I appreciate it and again, best of luck on the transaction.

Frank Duplak, Prudential.

Could you just please give me the availability on your revolver as of the end of the quarter?

It's about $400 million, taking into account the letter of credits we also have on the --

So about $75 million of letters of credit, rough numbers?

Around there.

Thank you.

Christine, we will take one last one and then we will go over to the business media.

(inaudible)

Actually my questions were answered, thank you.

(OPERATOR INSTRUCTIONS) Gilles Munger, Radio Canada.

We, in English or in French as you wish, Mr. Rougeau or Mr. Weaver. I'd like to see -- last year we were talking about the wood price. Now we are talking about the newsprint price. Would you say that you reached the barrel bottom?

As far as the transaction price?

As far as how the business helped Abitibi-Consolidated sante, health?

He is making reference to the health of the company.

Yes, at-large I mean.

I think that we feel good about the health of the company. I think certainly we have announced a price increase in some of our products for the third quarter, and so that should help. We continue to focus on costs and we have the synergies from the merger with Bowater. All these things will come together to improve the profitability of the new Abitibi Bowater.

How many mills do you expect to close with the merger?

You know, it is a discussion -- that is a discussion that we have not had and we would certainly be hopeful that all of our mills are profitable. Of course all of that is always dependent on what the market conditions are and we will have to look at the market. The market will close mills, not Abitibi Bowater.

When you are talking about the nine teams talking about the merger, isn't it what they are looking for? If they need to close or when you're talking about synergies also?

Synergies are completely independent of sales or marketing issues. It is 100% driven by cost reduction, so it has nothing really to do with the mill portfolio of the company.

Okay, thank you very much.

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(Spoken in French)

Thank you. This concludes today's question-and-answer period. I would now like to turn the meeting back to Mr. Alessi.

There is another call. take another call and then we will stop the conference. There's one last call I think.

Konrad Yakabuski, Globe and Mail.

I was wondering, Mr. Weaver, you said that you've spoken to all of your large major large shareholders on the Bowater Abitibi transaction. Does that include Quebecor? Given their rather unusual position of having monetized their holding but yet still holding the right to vote those shares?

You know we do not comment on specific shareholders, but we have had meetings with the majority or not all of our large shareholders.

So you can't tell me whether you believe --

It is not appropriate for me to comment specifically unless the individual shareholder wishes to go public.

Okay, but you are confirming that the only negative response you had was from Third Avenue management?

It is the only negative response that we have heard publicly.

Okay, thank you.

There are no further questions registered at this time.

All right. Well thank you all for joining and I guess we will see you next quarter. Thank you.

The conference has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.